'Conference on Enlargement of Indo-Sri Lanka FTA'
KEYNOTE ADDRESS at Inaugural Session
Southern India Chamber of Commerce and Industry
Chennai, February 17, 2006


KEYNOTE ADDRESS

Your Excellency Mr Jeyraj Fernandopulle, Mr S. Ramanathan, President SICCI, Deshbandhu Macky Hashem, Ms. Shashi Sareen, Mr Prasad Davids, captains of business and industry form Sri Lanka and India and other distinguished invitees, it is heartening to see such an overwhelming response to this event from both the Sri Lankan and Indian sides. The response is reflective of our upbeat bilateral economic and commercial relations. Let me begin by lauding the initiative taken by Southern India Chamber of Commerce and Industry to organize this Conference. In today's scenario of increasing economic engagement between India and Sri Lanka, South Indian states have a privileged position due to proximity and familiarity. In Sri Lanka there is a strong realisation that for economy to grow at expected levels, linking up with the Indian economic growth engine is imperative. If India moves at 8% sustained GDP growth rate, the South Indian states are growing much faster. And that is precisely where the opportunities lie. It is not surprising therefore, that Sri Lanka has set up a trade centre in Chennai and Sri Lankan Board of Investment office in Bangalore.

[Bilateral trade]

In the last five years, since implementation of the India-Sri Lanka FTA, bilateral trade has trebled. The billion dollar mark was crossed in 2002 and the 2 billion dollar mark has been reached in 2005. The trade balance in favour of India has declined from 15.7 : 1 in 1998 to 2.4 : 1 for 2005 demonstrating that Sri Lankan exports have grown much faster than India's and the result has been a more equitable trade expansion. India today is the largest source of Sri Lankan imports and the third largest export destination for Sri Lankan products. Our bilateral economic relations have shown greatest dynamism in the SAARC region, setting a benchmark for other countries to follow. India is also the second largest investor in Sri Lanka.

[Sri Lanka in the our regional economic matrix]

In the matrix of India's economic relations with its neighbours in the SAARC region, Sri Lanka occupies a very special place. We regard economic relations within SAARC as WTO+ and India - Sri Lanka bilateral eco relations as SAARC+. This is evident from the fact that we have the first FTA for both countries and are taking strides towards Comprehensive Economic Partnership Agreement (CEPA). Our PM has often cited the flourishing bilateral trade between India and Sri Lanka to dispel the fear that FTAs would hurt smaller countries. Speaking on our FTA at the first SAARC Business Leaders Conclave in Delhi in Nov, 2005, PM Manmohan Singh said, ' This FTA is a win-win agreement for both countries and could be a model for similar agreements in the region.' You have very aptly christened this event as a 'Conference on enlargement of FTA'. Enlarging FTA would enlarge gains for both sides.

[Enlarging FTA - the way to CEPA]

While FTA was the stepping stone, CEPA is the way ahead. During the State Visit of President Rajapaksa to India in December 2005, both sides had expressed confidence that the finalisation of CEPA would further unleash the inherent synergies between the two countries. CEPA is expected to sustain and build on the momentum generated by the FTA and take the two economies beyond trade in goods towards greater integration and impart renewed impetus and synergy to bilateral economic interaction. The CEPA process factors in the asymmetries of the two economies.The scope of FTA will be widened to include more items and deepened to improve market access through trade facilitation and removal of non trade barriers. CEPA would also include in its ambit, trade in services, facilitation measures on bilateral investment and bilateral economic cooperation to complement economic liberalisation.

CEPA would be largely based on the Joint Study Group which drew representation from the business communities from both sides. It would address their aspirations in our part of the world which is one of the least economically integrated regions. While multilateralism in South Asia has not kept pace with EU or NAFTA, we are committed to achieving progress on the bilateral track. The CEPA draft texts on Goods, Services, Financial Services, Investments and Economic Cooperation are almost complete. Some ground remains to be covered on Recognition of Mutual Standards and reduction of Negative Lists. I am glad that Export Inspection Council has taken a lead in organizing today's Conference. This only underscores the importance of MRAs in facilitating trade. I would like to assure the business community that officials on both sides are working assiduously for early conclusion of CEPA.

[Sri Lankan economic outlook and business opportunities]

A strategic location on Asia's trade routes, extensive liberalization and an extremely conducive socio-political and economic environment have made Sri Lanka one of the fast growing economies in South Asia. The economic advantages and complementarities offered by the Sri Lankan economy have attracted the attention of Indian industry and investors. President Rajapaksa has set a target of foreign direct investment of US$ 1 billion for 2006. Addressing a press conference last month Mr Rohita Bogollagama, Minister of Enterprise Development and Investment Promotion, stated that about USD 600 million may come from India alone. SL has launched a 300 factories programme which involves various tax holidays for investments in different parts of the country. Prospective investors must tune their antennae for details.

Preferential tax rates, constitutional guarantees on investments, exemption from exchange control, 100% repatriation of profits, permission for 100% FDI, make Sri Lanka an investors delight. Sri Lanka provides a springboard to the west through the GSP, South-East Asia through the Bangkok Agreement and the Indian sub continent through the five year old Free Trade Agreement with India and recently implemented FTA with Pakistan. What also beckons you also is visa free travel and over 100 flights a week.
[Investments on either sides]

With CEPA, we expect a quantum leap in bilateral investments. While India is today the second largest overall foreign direct investor in Sri Lanka, Sri Lankan investments in India are also increasing.

Major Indian investments include Lanka Indian Oil Corporation, TATAs, Apollo Hospitals, LIC, Aditya Birla Group, Ambujas, Rediffusion, Ceat and Nicholas Piramal. Two Forbes 500 company are already in Sri Lanka (Indian Oil Corpn and ICICI Bank), another two are about to begin operations (NTPC and ONGC)

Although Sri Lankan FDI in India is still modest, a good beginning has been made. Increasing number of Sri Lankan investors have been making forays into India. Damro and Bodyline are popular brands in Chennai, soon to be joined by 'Munchee' biscuits in North India. What is heartening is the entry of Sri Lankan investors in the infrastructure sector in India. I am referring to the lead taken by Brandix in setting up a 'Garments City' in Vizag SEZ, Celyinco eying investment in real estate sector and John Keels and Aitken Spence knocking the doors of the hospitality industry.

[A word of caution --- Areas of concern in investments]

While talking of investments in Sri Lanka, there have also been a few areas of concern. One is the pending subsidy of Lanka IOC which has now mounted to US$ 74 million. While we appreciate government efforts to resolve the issue, a lot more needs to be done to shore up sagging investor confidence and market sentiment. LIOC is widely acknowledged to set new standards in the petroleum retail sector in SL. Not only their profitability but their planned investments in SL hinge on the pending subsidy payment.

Another issue of concern is the quality of investments from India to Sri Lanka which have been well below expectations. Quality investments are expected to generate local employment, improve the human resource pool, assist infrastructure development, increase bilateral trade and play the role of a catalyst in economic development. Investments in the field of Copper and Vanaspati and now Bakery Shortening have not addressed these objectives. While I would like to congratulate a professional outfit like the Board of Investment of Sri Lanka for setting up its first offshore office in Bangalore last year, I would also urge them to suitably address this issue.

[India's role in the development process in Sri Lanka.]

India has been a committed partner in the development process in Sri Lanka. This has largely been through the credit lines extended to Sri Lanka and programmes for technical and economic development. Today we see this role in an expanded form. During the State Visit of President Mahinda Rajapakse a decision was taken to develop a Master Plan for the development of the eastern Sri Lankan port city of Trincomalee, and its surrounding region. This would include building up of the necessary infrastructural support. It was agreed in this context that a coal based power project of capacity 2x250 MW will be set up in the Trincomalee region of Sri Lanka, as a joint venture between the National Thermal Power Company Ltd and the Ceylon Electricity Board. The areas of agriculture, IT and renewable energy were also identified for potential cooperation.
In recognition of the high priority accorded by the President of Sri Lanka to reconstruction and development in the North and East, Government of India offered to support these efforts through technical and financial assistance. We announced assistance in constructing a library and a stadium in Jaffna. We are currently working on the construction of a new 150-bed Hospital at Dickoya in the Central Province. GoI has also announced a grant of US$ 7.5 million for a Cancer Hospital in Colombo.

Development of human resources is a key to driving our development process. During the State Visit we also decided to accelerate co-operation in the field of human resource development. Some measures in this endeavour include the Mahatma Gandhi scholarship scheme for 100 deserving Sri Lankan students every year, the upgradation of libraries and science laboratories in the Upcountry areas, the setting up of a Chair in Contemporary Indian studies in Peradeniya University and commissioning of a field study on vocational training centers.

India, as you al knowl, while dealing with the aftermath of tsunami in our country, extended spontaneous assistance to Sri Lanka. This included relief supplies, medicines, floating hospitals, construction of Bailey Bridges etc. In addition to the immediate relief efforts, India has donated medical equipment to the affected hospitals of Point Pedro and Hambantota. We have also initiated action to prepare a Detailed Project Report on the rehabilitation of the tsunami-damaged Base Hospital in Trincomalee.

[Conclusion]

India and Sri Lanka have shared traditions, cultural affinities and a commitment to enhance and strengthen our political, economic and cultural ties. In the immortal words of the great poet Subramania Bharati, there is a veritable 'bridge of friendship' between our two countries. With strengthening economic and political ties, we can see this bridge broadening. Today's event organized by Southern India Chamber of Commerce and Industry is also a bridge of sorts, bringing together businesspersons from both sides. As time moves on, new challenges emerge and new opportunities spring up. These have to be addressed by policy makers in order to fashion the right enabling environment for further enhancing trade and investment. This cannot happen without constructive inputs from business persons and trade associations. That is where lies the importance of events such as this Conference. I am confident that this Conference will result in opening new business opportunities and strengthening existing ones.

I wish to conclude by thanking the organizers and participants and wish the event success.

Thank you very much.